MIT report: Commercial real estate sector cooled in Q1

The commercial real estate market decelerated in the first quarter, as institutional property investors were stung by declines in both sales and prices, according to a new study by MIT’s Center for Real Estate.

When compared to property sales tracked in 2010’s fourth quarter, the Jan. 1 through March 30 period was a bit of a downer for institutional investors. Commercial property sales among this investor class — generally insurance companies, pension funds, colleges and affiliated endowments — totaled 70 transactions in the first quarter. That figure was off 24 percent from 91 transactions recorded the prior quarter, according to MIT.

The dollar value of Q1’s transactions also declined to $2.5 billion, from $4.1 billion in the prior quarter. On a per-transaction basis, the first quarter’s average deal size of $35.7 million was off 22 percent from the $45.6 million average posted in the Oct. 1 through Dec. 31 period.

Consequently, institutional sellers who unloaded properties in the first quarter collectively posted a negative 0.7 percent return on their investments. In addition to pricing data, MIT said its return calculations accounted for net cash flow over each property’s investment cycle.

MIT’s Center for Real Estate said its analysis was based on pricing and sales data generated by the National Council of Real Estate Investment Fiduciaries.

“The first quarter performance represents a bit of a breather in the recovery of the institutional commercial property market that the index has been tracking since mid-2009,” said Professor David Geltner, the MIT center’s director of research.